Macroeconomic trends such as central bank lending rates or interbank reference rates, and financial market events like a credit crisis, can affect prices. In this regard, the precise timing of the issue of a financial instrument in the primary market or the selection of comparable data in the secondary market can therefore be very significant in terms of comparability. For instance, it is not likely that multiple year data on loan issuances will provide useful comparables. The opposite is more likely to be true, i.e. that the closer in timing a comparable loan issuance is to the issuance of the tested transaction, the less the likelihood of different economic factors prevailing, notwithstanding that particular events can cause rapid changes in lending markets.
TPG2022 Chapter X paragraph 10.32
Category: B. Interaction with the guidance in Section D.1 of Chapter I, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Comparability factors, Economic circumstances, Economically relevant characteristics, Financial transactions, Multiple year data, Precise timing of the transaction, Timing of transaction
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- TPG2022 Chapter X paragraph 10.33Currency differences are another potentially important factor. Economic factors such as growth rate, inflation rate, and the volatility of exchange rates, mean that otherwise similar financial instruments issued in different currencies may have different prices. Moreover, prices for financial instruments in the same...
- TPG2022 Chapter X paragraph 10.34Business strategies must also be examined in accurately delineating the actual financial transaction and in determining comparability for transfer pricing purposes since different business strategies can have a significant effect on the terms and conditions which would be agreed between independent enterprises....
- TPG2022 Chapter X paragraph 10.31The prices of financial instruments may vary substantially on the basis of underlying economic circumstances, for example, across different currencies, geographic locations, local regulations, the business sector of the borrower and the timing of the transaction....
- TPG2022 Chapter X paragraph 10.30To achieve comparability requires that the markets in which the independent and associated enterprises operate do not have differences that have a material effect on price or that appropriate adjustments can be made....
- TPG2022 Chapter I paragraph 1.131The existence of a cycle (e.g. economic, business, or product cycle) is one of the economic circumstances that should be identified. See paragraph 3.77 in relation to the use of multiple year data where there are cycles....
- TPG2022 Chapter X paragraph 10.12In accurately delineating an advance of funds, the following economically relevant characteristics may be useful indicators, depending on the facts and circumstances: the presence or absence of a fixed repayment date; the obligation to pay interest; the right to enforce payment of principal...
Related Case Law
- Ukrain vs Ajalyk Trade LLC, February 2020, Supreme Administrative Court, Case No 804/5360/17In the case of Ajalyk Trade LLC, the Supreme Court ruled in favour of the tax authorities, confirming the legality of the tax adjustment. The court held, that if the quantity and price of goods are determined in the specifications of the contract...
- Ukrain vs Totland LLC, November 2021, Supreme Court, Case No 580/2610/19Following a tax audit of controlled transactions in 2013 and 2015 for the sale of goods to foreign related parties, the tax authorities concluded that Totland had understated the price of the goods sold and thus its taxable income. On that basis an...
- Ukrain vs Dniproazot, July 2024, Supreme Administrative Court, Case № 160/3387/22Following an audit, the tax authority determined that prices for controlled transactions had been below the arm’s length price and issued an assessment of additional taxable income. According to the tax authority, the correct application of the arm’s length principle in this case...
- Poland vs L S.A, June 2019, Supreme Administrative Court, Case No. II FSK 1808/17 – Wyrok NSAA Polish subsidiary in a German Group had taken out a significant inter-company loan resulting in a significantly reduced income due to interest deductions. At issue was application of the Polish arm’s length provisions and the arm’s length nature of the interest rate...
- Ukrain vs “Novo-Sanzharsky Grain Storage LLC”, September 2024, Administrative Court, Case № 440/3712/24Following an audit, the tax authority determined that prices for controlled transactions of grains had been below the arm’s length price and issued an assessment of additional taxable income. According to the tax authority, the correct application of the arm’s length principle in...